Trading without the middle man?

[moka2]

Siomon
You may have good intentions but the fact remains that counterparty risk with OTC is more than with True Exchnages.. both of failure and conflict of interest

There could be fraud and auditors could fail to detect that ( look at what happened with Sonray in Australia) then what we become ordinary creditors!
SIPC and perhaps FSCS insurance ( only if the product is covered under them) is the only safe way
Even Futures NFA FCm does not proetc the punter!

 

[capitalspreads]

mmmmm

i would agree with you but... you may find that the exchanges are not as safe as you might think. They have minimal capital compared to the huge counterparty risks that they cover. A major move leaving a big hedge fund/bank owing hundreds of millions/billions could leave the exchange owing vast sums to the 'winning side' of a deal. And Futures / spot FX are not covered by the FSCS in many cases.

Companies like Capital Spreads just do not have this size of client risk as we could not take the counterparty risk.

There is little i can say about fraud . in nearly all instances these come out of the blue. And i am always amazed how easily the Auditors duck out of their responsibilities.

Simon

 

[moka2]

exchanges are not as safe as you might think"
But don;t they novate the contract so we don't have to deal with counterparty risk
But atleast they are linked with the insurance(Equity and OPtion only in USA and AUstralia not Futures or FX) OTC is NOT
also the barrier of entry set by better regulations means less chances of fly by night operators getting in
By the way assuming your firm is a market maker
IS it not true that for us to win you have to loose? unless you are able to match every trade with outer clients or in the market?
Also with DMA model ( CFD in AUS and UK) we DO NOT Hold any direct ownership in the sahres...

What I always wonders specially with FX why don;t large estblished exchanges make it Exchange traded SPOT?
ALos with the client money safety why does not the central govt make it mandatory for all brokers to keep the client money in a central clearing house liek OCC.. so Brokers can concentrate in marleting and providing leverage funding..and good platform etc earn the comms from us punters and earn an incentive from the exchnage
Win win we get an assurance no matter how big or small the broker is our money is safe!

 

[capitalspreads]

moka

that is the point about the exchanges

with a market maker your risk is with us with an exchange your risk is with the exchange... but (by the equal and opposite) their risk is also with you (or your broker)

there is no such thing as exchange traded spot FX as every single financial centre has its own clearers people like LCG at the middle point. ICAP at the bigger end (in the UK) other ECNs in every major bank across the world. They would all have to agree on a central exchange. flying pigs spring to mind!

same with your other suggestion. if all client funds were held in a central fund then
a) the government would have control of it !! and please show me an efficient government organisation (can u imagine the compliants)
b) the funds for each seperate product would have to be held in the clearer concerned. so you want to trade and oil contract then a ftse then a dax... u would have to have accounts with every central clearer ( in the US/UK Germany/Japan etc)... not only this but different clearers have different margin rules/max risk etc etc... in the US cfds and spread bets are illegal.. so under a central control you could only trade US futures on massive margin and only if you agreed to be bound by US client rules

i think that for the clients the current situation is far better and far more flexible.

in money terms the sonrays and worldspreads are very small

simon

 

[moka2]

(i think that for the clients the current situation is far better and far more flexible.)
As far Aus is concerned no they are not as ClInet money safty is not there
and of the rparts of teh world ... Futures are still have no protection let alone FX

(in money terms the sonrays and worldspreads are very small
) SO? try and say that in front of the creditors who have lost savings and that not becasue of market risk becasu ethe MM inindustry and the regulatoir do not bothe rrnough and does that means retail investors shouls not have protection? how can this be a good thing

Look I understand MM's right to carry business but bashing regulators and Govt is just not going to earn respect.... OTC MM should derisk it for clients not redeuce rrgulation... so more and more people will trade
Reg central fund.. I was referrinbg to each jurisdction not cross boarder.. nor cross market
Start with One country > Equity first and then Futures and Options
We are ther to take Market risk but not stupid Broker risk

 

[capitalspreads]

moka

i was hardly 'bashing' govt i was just saying that if all this stuff was centrally margined/cleared then you might as well turn off the lights as there would be zero flexibility (or new development) and the brokers/market makers would have to put up margin versus all their client positions with the clearing agent whilst at the same time being unable to touch the client money (which would be segregated). the amount of capital required would be vast and so charges/spreads/financing would have to go up.

Not only this but margin required for each position would have to go up to match the margin required by the clearer and to limit the size of positions achievable by clients.

Effectively this is what the US regulator did to the FX market.. restricting margin and forcing brokers to put a huge bond with the authorities. As nobody outside the US can accept US retail clients this has meant a massive reduction in trade volumes .. the extinction of any small brokers and the virtual removal of any chance of new competition entering the market. Therefore effectively they have created a restrictive monopoly confined to the 'big beasts'.

Competition is created when more nimble entrants force change but creating massive clearing centres would remove this possibility.

Simon

 

[moka2]

moka

i was hardly 'bashing' govt i was just saying that if all this stuff was centrally margined/cleared then you might as well turn off the lights as there would be zero flexibility (or new development) and the brokers/market makers would have to put up margin versus all their client positions with the clearing agent whilst at the same time being unable to touch the client money (which would be segregated). the amount of capital required would be vast and so charges/spreads/financing would have to go up.

Not only this but margin required for each position would have to go up to match the margin required by the clearer and to limit the size of positions achievable by clients.

Effectively this is what the US regulator did to the FX market.. restricting margin and forcing brokers to put a huge bond with the authorities. As nobody outside the US can accept US retail clients this has meant a massive reduction in trade volumes .. the extinction of any small brokers and the virtual removal of any chance of new competition entering the market. Therefore effectively they have created a restrictive monopoly confined to the 'big beasts'.

Competition is created when more nimble entrants force change but creating massive clearing centres would remove this possibility.

Simon

You say "whilst at the same time being unable to touch the client money"
NO BROKER SHOUDL BE TOUCHING client money any way...
That itself is the huge risk
I think your sentence itself shows why OTC is against restrictions and does not really care about cleint money safety that much
If "Flexibility" means ability to "Touch" client money that is HUGE risk people! wake up

Centralised or not
People can trade with either 100% money or if they want margin just like what happens now you the broker provide the margin loan! and
So if we are talking about futures say the margin required is 20% then our money stays with the central clearing under your "Client of xyz broker"and then we pay you brokerage, Interest just like now.
What is so complicated?

 

[moka2]

Simon what do you mean "the amount of capital required would be vast and so charges/spreads/financing would have to go up.
Why? we already pay you the margin.. all I am saying is that money should stay with a central clearer...
not you guys becasue of you /broker running away with it!
Take DMA CFD... We pay you basic margin, You add your money ( Liek a Margin Loan) and you take a ACTUAL position n the Stock MArket
SO where does the capital requirement will go up comes in to?
Are you refering to FX only?